The new law

In December 2021, in alignment with the most recent OECD and Financial Action Task Force Recommendations, the National Congress of Brazil (Congress) voted on and approved Federal Law No. 14,286 of 29 December 2021 (the Law),[1] concluding the long‑awaited modernisation of Brazilian foreign exchange legislation. The Law aims to reduce existing barriers regarding the flow of capital, increase market efficiency and enable the entry of new players. Importantly, the law also intends to modernise, simplify and consolidate existing legislation that comprises a diffuse set of laws, many of them in force since 1920.

The Law determines that the Central Bank of Brazil (Banco Central do Brasil, the BCB) and not Congress shall be responsible for issuing a new set of thorough regulations addressing the main innovations introduced by the Law, including, among others, authorisation for:

• banks to comply with payment orders in Brazilian reais received from abroad or sent abroad through accounts held at institutions domiciled or headquartered abroad, with the objective of increasing the circulation of Brazilian reais abroad, while overturning a historical limitation on the investment abroad of funds raised in the country;
• financial institutions and other entities to offer credit and financing operations in Brazil and abroad using resources raised in the country and/or abroad, subject to regulatory and prudential requirements to be established by the BCB; and
• Brazilian and foreign individuals/entities to offset their credits and debts privately, ending a restriction imposed by a law enacted in the 1930s.

In consultation

For this reason, in May 2022, the BCB launched Public Consultation Notice (No. 90/2022) regarding a proposal for regulatory legislation aimed at regulating the foreign exchange market. A second consultation, Public Consultation Notice (No. 91/2022), launched by the BCB on the proposed regulation, aimed to address the following innovations:

• disclosure of information to the BCB regarding foreign credit and foreign direct investment for a limited set of operations, considering the range of amounts and other specific conditions;
• exclusion of the overlap between foreign capital census, quarterly economic‑financial statements and annual ownership structures, along with the unification of rules and the establishment of unified criteria for the provision of information on foreign direct investments;
• removal of the existing requirement to provide information to the BCB about contracts between residents and non‑residents regarding the use or assignment of patents, industrial or commercial trademarks, technology supply, and those related to the provision of technical and similar services, foreign operational leasing, renting and chartering;
• removal of restrictions on international remittances for payments (principal and interest) of foreign credit transactions with no inflow of funds to Brazil, while determining that information of such transactions shall be provided to the BCB, in accordance with certain criteria; and
• removal of the obligation of symbolic (with no inflow/outflow of funds) exchange operations or international transfers in Brazilian reais for all cases related to foreign capital.

Conclusion

A new public consultation is expected to be announced in the near future and will specifically address foreign investments in the Brazilian financial and capital markets. Once the regulation of foreign capital in Brazil and Brazilian capital abroad is concluded, a new round of modernisation and integration of IT systems (for providing information on foreign direct investments and surveys) will begin in 2023, which will further simplify operational procedures.